U.K. Telecoms Watchdog Wants Consumers To Be Able To Exit Contracts Without Paying A Penalty If Prices Go Up Mid-Term

U.K. telecoms regulator Ofcom is proposing to change the rules on fixed contracts for mobile, landline and broadband services to prevent providers forcing price hikes on existing customers. Ofcom's current rules are open to interpretation -- since comms providers only have to allow consumers to exit a contract without penalty when a contractual term change is likely to be of 'material detriment'.

U.K. telecoms regulator Ofcom is proposing to change the rules on fixed contracts for mobile, landline and broadband services to prevent providers forcing price hikes on existing customers. Ofcom’s current rules are open to interpretation — since comms providers only have to allow consumers to exit a contract without penalty when a contractual term change is likely to be of ‘material detriment’, leaving room for different interpretations of what constitutes ‘material detriment’.

Ofcom wants to clarify and simplify the rules, by proposing to allow consumers to exit a contract without penalty if their provider introduces any price increase during the term of the contract. The regulator also wants providers to be “clear and upfront” about the potential for price increases during a contract, as well as keeping them informed of their right to cancel the contract in the event of any price increase.

The proposed new rules follow a review conducted by Ofcom of the fairness of certain contract terms. Ofcom said it examined 1,644 consumer complaints about changes to terms and conditions during the period September 2011 to May 2012, adding that its analysis shows many consumers complained they were not made aware of the potential for price rises in what they believed were fixed contracts.

All the U.K.’s major mobile carriers have raised prices in recent months — with O2 the latest to announce mid-contract price rises last month, following similar hikes by Vodafone, Orange, T-Mobile and Three in the past 14 months, according to consumer advice publication Which?.

Ofcom’s preferred proposal is to modify its General Condition 9.6 to allow consumers to withdraw from a contract without penalty, if providers increase prices during the contract term but the regulator is also consulting on three other possible approaches to tackle price rises in fixed term contracts — including looking at

whether consumer harm could be addressed solely by tackling the current lack of transparency around the potential for price increases. This is considered alongside the possible need for guidance on how providers should interpret and apply both Ofcom rules and general consumer protection laws when making price increases

whether consumers should have to actively ‘opt-in’ to any variable price contract

Ofcom is also considering the implications of maintaining the status quo but added that its current view is that these three options are unlikely to be sufficient to address the consumer harm it has identified.

The regulator also reveals it has considered a complete ban on price rises in fixed contracts but says it does not think this would be consistent with the European legal framework, so the option to ban mid-term contract rises has not been included in the consultation.

The consultation closes on March14, 2013 and Ofcom expects to publish a decision in June 2013.